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Terminal Illness Benefit in Term Insurance

A terminal illness diagnosis can have a devastating impact on a person and his/her family. Regular hospital visits, doctor treatments, surgeries, medications, and other related expenses can affect his/her finances in such cases. With a good lifestyle and other precautions to avoid health-related issues, one should also buy terminal illness benefits in term insurance. This rider can help the policyholder secure themself for the long term and pay off any expensive hospital bills and also seek medical help outside India without worrying about their financial situation, which can ultimately improve their survival chances.

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These benefits help to secure our life while protecting our family financially.

What is Terminal Illness?

A terminal illness is a condition or an illness that can’t be cured and is likely leads to death.

A terminal illness in term insurance is considered valid if two certified doctors confirm the policyholder’s diagnosis of a terminal illness i.e., an untreatable condition which reduces the policyholder’s life expectancy to less than 6 months. This means if the policyholder is diagnosed with a terminal illness during the policy term, he/she will either receive the entire or a part of the base sum assured to seek better medical treatment and cover the hospital charges. The payout amount on the diagnosis of a terminal illness depends on the policy’s T&Cs, and thus, you should go through the policy documents before adding the rider to the base plan.

What is Terminal Illness in Term Insurance?

A terminal illness benefit is an insurance rider that is defined as an attachment to an existing term insurance plan that provides coverage in addition to the policy. Riders are mainly designed to enhance coverage by paying an additional premium. Terminal illness benefit provides you with a tax-free lump sum amount in case of the diagnosis of a terminal illness. In case you are diagnosed with a terminal illness, you will be provided with a guaranteed amount which, in the future, can be used to take care of any hospital bills or medical expenses. As we already know, the medical treatment for a terminal illness is expensive, but the early payout on terminal illness riders can help you pay off the hefty bills without it draining your savings.

How Does Terminal Illness Benefit Work in Term Insurance?

Let us understand how the accelerated death benefit rider works using an example:

Suppose a Rajan bought a 1 crore term insurance with the optional terminal illness cover included in the base plan. Now Rajan pays the minimal premium for the terminal illness rider along with the base premiums and receives enhanced coverage for the entire policy term. After 5 years, Rajan is diagnosed with a heart disease that is untreatable and is termed by doctors as terminally ill with only 6 months to live. The insurer pays the entire 1 crore sum assured in advance, and the policy terminates. Rajan uses the payout amount to seek medical help from specialists in other parts of the world and gets world-class treatment without worrying about his finances.

What is the Importance for Terminal Illness in Term Insurance?

Terminal illness benefit is an important term insurance rider and is needed in term insurance because of the following reasons:

  • Financial Security: The accelerated death benefit rider or the terminal illness benefit provides the policyholder and their family with the financial aid that they need to take care of their hospital bills, medication costs, and lifestyle expenses and pay off any remaining financial needs and obligations.

  • Long Protection: The terminal illness in term insurance provides cover against the terminal illness for the long term. Most term insurance plans offer protection against terminal illness till 85 years of age of the policyholder.

  • Secure Savings: With the terminal illness benefit payout, you would not have to dip into your savings to pay for any expenses. You can keep your savings safe and secure and pay for your financial obligations using the benefit amount.

  • Pay off Hefty Bills: The payout can help the policyholder seek the best medical help available, whether it is in India or overseas. They can simply pay for the expensive hospital bills using the payout received and improve their chances of survival.

  • Peace of Mind: Knowing that there is a terminal illness benefit in place provides policyholders with peace of mind. It relieves the anxiety and uncertainty associated with the financial implications of a terminal diagnosis. This peace of mind allows individuals to focus on their emotional well-being, spend quality time with their loved ones, and make important end-of-life decisions without the added stress of financial concerns.

Benefits of Buying Terminal Illness Benefit in Term Insurance Plan 

Here is a list of all the ways in which a terminal illness or accelerated death benefit rider can benefit you during the policy term:

  1. Higher Sum Assured with Low Premium Rates

    Terminal illness benefits or the accelerated death benefit rider in term insurance plans are either inbuilt within the plan or are available at really affordable premium rates. This term insurance rider can be added to the base term plans at nominal premiums, which can be paid along with the base premiums and receive a large life cover at really low premiums.

  2. Acts as an Income Replacement 

    Terminal illness benefits taken along with the term insurance plan offer various advantages, such as it protects you against any uncertain event and also covers routine medical test payments and medical expenses. Some of the term insurance plans also offer an option of ROP i.e., Return of Premium. If in case you outlive the plan, you will get all the premium amounts that you have paid throughout the policy tenure at the time of maturity. Many people are rendered unable to continue their jobs after being diagnosed with a terminal illness, and thus the terminal illness benefit payout can help them meet their daily expenses and pay their rent and child’s fees.

  3. Protects Against Life-Threatening Medical Situations 

    The terminal illness benefit payout can help the policyholder fund the expensive treatments and surgeries to improve their condition and pay for new consultations overseas for a better chance at survival. With this payout, the policyholder can focus on getting the required treatments without worrying about financial issues.

  4. Pay off Debts and Loans

    The policyholder can use the accelerated death benefit rider payout to pay off their remaining loans and debts like student loans, home loans, car loans, or any other debts they may have availed of. This ensures that the family of the policyholder isn’t burdened with trying to pay off these loans and liabilities in the policyholder’s absence.

  5. Double Tax Benefits 

    Terminal illness benefits in term insurance plan provides you dual tax benefits. The premiums paid for these terminal illness coverages and a term plan are exempted in both U/S 80C and 80D of the Income Tax Act, 1961. It is important to note that the term insurance tax benefits are subject to change as per the prevailing tax laws.

Wrapping It Up!

Terminal illness benefit in term insurance plan is beneficial as these plans help you and your loved ones against life uncertainties. If you are thinking to buy term insurance with terminal illness benefits, choose a plan that best suits your requirements. These rider plans offer comprehensive coverage to ensure that you should always remain safeguarded against critical times.


  • What is the difference between terminal illness vs critical illness in term insurance?

    Ans: Terminal illness in term insurance is an add-on rider that provides a part or whole sum assured in advance on the diagnosis of the terminal illness during the policy term. On the other hand, critical illness riders pay the rider sum assured on the diagnosis of critical illnesses listed under the plan. The critical illness rider usually provides the rider sum assured on top of the base sum assured, whereas the terminal illness amount is the base sum assured paid in advance.
  • What will happen if I claim terminal illness in term insurance?

    Ans: On placing the claim for terminal illness benefit amount, the insurer will review the validity of the claim. On successful verification, the terminal illness benefit amount will be paid to the policyholder, and the policy will terminate as per the policy’s T&Cs.
  • Can I add a terminal illness rider to all types of term insurance plans?

    Ans: You can add the terminal illness riders to only term plans that offer terminal illness as an optional benefit. Some term plans have the terminal illness rider inbuilt, whereas some plans do not offer the option of including the accelerated death benefit rider in the base plan.
  • What is terminal illness insurance coverage?

    Ans: Terminal illness insurance coverage refers to the additional coverage that you can opt for by adding the terminal illness rider to the base plan. This rider provides a part or whole of the base sum assured as an accelerated benefit on the diagnosis of a terminal illness during the policy term.

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